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As Apple prepared to introduce its first iPad, the late Steve Jobs, then its chief executive, suggested moving to an "agency model," under which the publishers would set the price of the book and Apple would take a 30% cut. Apple also stipulated that publishers couldn't let rival retailers sell the same book at a lower price.

"We told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway,'" Mr. Jobs was quoted as saying by his biographer, Walter Isaacson.

The publishers were then able to impose the same model across the industry, Mr. Jobs told Mr. Isaacson. "They went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books,' " Mr. Jobs said.

While the publishers may be guilty of collusion, I am not sure how I see Apple's guilt in this. All Apple did was say it wanted a 30% cut, you set the price. This is the same deal they have with their App Store and quite possibly iTunes.

What I see as happening is the publishers saw that people were willing to pay a higher price to Apple, so they decided that they would attempt to force the same deal on Amazon. Result is higher prices.

But as I see it, no one forced them into the deal with Apple in the first place.

While the publishers may be guilty of collusion, I am not sure how I see Apple's guilt in this. All Apple did was say it wanted a 30% cut, you set the price. This is the same deal they have with their App Store and quite possibly iTunes.

What I see as happening is the publishers saw that people were willing to pay a higher price to Apple, so they decided that they would attempt to force the same deal on Amazon. Result is higher prices.

But as I see it, no one forced them into the deal with Apple in the first place.

Apple's culpability may revolve around their rule that the same book couldn't be sold to another party for less. Amazon was in a wholesale model, just like they were for physical books, where they bought for a set price and then sold it for whatever price they wanted. Some Kindle books were reportedly sold below costs, with the Agency model the other re-sellers could no longer discount because the price is set by the publisher.

There are talks that a settlement may be reached with some of the publishers, no mention of the same talks occurring with Apple.

Barnes & Noble and Apple argue that eBooks are available to more people (because of iPad adoption rates primarily) and that benefits consumers but almost all the new releases went up from $9.99 to at least $12.99 after the publishers forced the new model on Amazon, so it wasn't good for the millions of Kindle (or Kindle application) users.

Apple's culpability may revolve around their rule that the same book couldn't be sold to another party for less.

Yes, but Apple didn't set the price. The publishers did. They could have set the price at $9.99 to match the Kindle pricing. But they didn't.

I think Apple is in the clear here simply because they only offered a way for publishers to sell books on their platform and they are free to set the terms for these sales. No one forced the publishers to go along with it. The Kindle was well established by this time so they really didn't need to go with Apple.

They instead saw it as a way to get increased revenue so they went along with it.

Yes, but Apple didn't set the price. The publishers did. They could have set the price at $9.99 to match the Kindle pricing. But they didn't.

I think Apple is in the clear here simply because they only offered a way for publishers to sell books on their platform and they are free to set the terms for these sales. No one forced the publishers to go along with it. The Kindle was well established by this time so they really didn't need to go with Apple.

They instead saw it as a way to get increased revenue so they went along with it.

I see your point but I doubt (hope) the US DOJ isn't filling a lawsuit against anyone, much less a behemoth like Apple, without some pretty compelling evidence. There's always the possibility it gets dismissed, etc. but I don't believe that happens too much when it's the DOJ filling it.

Personally I was unhappy with Apple for giving the publishers pricing control because it raised my prices when they forced the same deal on Amazon shortly after.

It was also interesting to me that they were wiling to relinquish price control on ebooks when they were so successful in controlling the price of music.

It's complicated, but I regularly buy books via Kindle at $3.99 or less (more than a few at 99¢), which to me reflects the fact that we're not part of creating or shipping piles of paper with printing on it around the country.

I'll be interested in seeing how publishers justify those prices - how much is paid to the author, an editor, etc., and how much goes into printing, distribution, and the costs associated with books printed that don't sell - the latter being totally waste.

For example, at the time of writing, Amazon sells Stephen King’s bestseller “11/22/63″ in hardcover for $17.49, with the Kindle e-book version going for $26.91....

...TechCrunch reports that Random House has revised its pricing policy for libraries, raising the price for e-book titles by as much as 300%. Library journal The Digital Shift pointed to the example of a Random House e-book being offered to libraries for $40 being raised to $120. The library is able to buy the print version of that same book for $20. Even some children’s titles — which often cost $10 or under in print — are going for as much as $85 as e-books for libraries.

This isn’t the first case of a publisher lashing out at libraries over e-books, either. Last year, HarperCollins set a limitation of 26 check-outs for its e-books, after which a library would be forced to buy a new copy. Other major publishers either refuse to sell some popular titles to libraries or don’t allow them to lend out their e-books at all.

Keep in mind who the defendants are:

In addition to Apple, the defendants in the DOJ suit are expected to include CBS‘s Simon & Schuster (NYSE:CBS), Hachette Book Group, Pearson (NYSE:PSO), Macmillan, and News Corp‘s HarperCollins (NASDAQ:NWS)

(Pearson owns the Financial Times and it's Penguin Group segment engages in book publishing business, under the Hamish Hamilton, Putnam, Berkley, Viking, Dorling Kindersley, Puffin, and Ladybird imprints. Hachette Book Group similarly has many "brands" such as Little, Brown and Company, but controls no news outlets.)

This means to me that every story by News Corp's and CBS subsidiaries is suspect, including the one noted in the original post from News Corp's Wall Street Journal.

Lastly, I'm an iPad Kindle App user. I have no delusions about Steve Jobs attitude regarding these matters. On the one hand, he thought of himself as a great benefactor just making books available to people. On the other hand, if he could force the price up 50% with most of it going to Apple, he wouldn't hesitate. So Apple's stuck with collusion charges.

Edited by phrelin, 08 March 2012 - 04:16 PM.

"In a hundred years there'll be a whole new set of people."
"Always poke the bears. They sleep too much for their own good."

Not necessarily related, but I noticed recently that Kindle library books are now being restricted to Kindle devices, keeping them from the Kindle app on other e-readers or tablets. HarperCollins (and possibly other publishers) limits the number of library checkouts to something like 24 times before the library needs to purchase another copy.

I have no delusions about Steve Jobs attitude regarding these matters. On the one hand, he thought of himself as a great benefactor just making books available to people. On the other hand, if he could force the price up 50% with most of it going to Apple, he wouldn't hesitate. So Apple's stuck with collusion charges.

I think it was more the former than the latter. Jobs was rarely motivated by profits over product, at least based on everything I've read about him. He was sometimes criticized by others at Apple because he didn't want to charge enough for things.

He was a competitor, though, and I think he simply wanted to ensure if Apple was going to feature and/or promote a publisher's titles on iTunes, those books wouldn't be available on Amazon (or elsewhere) for less money. IMHO, he would have been an idiot if he didn't ask for that kind of insurance.

I think it was more the former than the latter. Jobs was rarely motivated by profits over product, at least based on everything I've read about him. He was sometimes criticized by others at Apple because he didn't want to charge enough for things.

He was a competitor, though, and I think he simply wanted to ensure if Apple was going to feature and/or promote a publisher's titles on iTunes, those books wouldn't be available on Amazon (or elsewhere) for less money. IMHO, he would have been an idiot if he didn't ask for that kind of insurance.

Maybe I'm a little jaded about Jobs, but even the concept that "those books wouldn't be available on Amazon (or elsewhere) for less money" puts Apple into the arena of legally questionable price collusion practices.

If Amazon wanted to sell a book that costs them $299.99 for the sale price of $2.99, there should be no restrictions

"In a hundred years there'll be a whole new set of people."
"Always poke the bears. They sleep too much for their own good."

After I thought about this more, I realize that I'm an old guy who remembers when there were so-called "Fair Trade Laws." Under state imposed Fair Trade statutes, the manufacturer was able to impose a fixed price for items. These fixed prices could offer some price protection to small merchants in competition against larger retail organizations. This began in 1931 during the Great Depression my state, California.

They are all gone now. What you see is the MSRP which large discount stores ignore completely.

The idea that in the 21st Century U.S. a manufacturer and a retailer would agree that no one could undersell a price because the manufacturer sets the retail price disturbs me. Manufacturers and wholesalers can decide the price they'll sell an item to a retailer. But what the retailer charges is none of their business.

"In a hundred years there'll be a whole new set of people."
"Always poke the bears. They sleep too much for their own good."

Maybe I'm a little jaded about Jobs, but even the concept that "those books wouldn't be available on Amazon (or elsewhere) for less money" puts Apple into the arena of legally questionable price collusion practices.

If Amazon wanted to sell a book that costs them $299.99 for the sale price of $2.99, there should be no restrictions

I respectfully disagree. I think Jobs could have cared less if the books sold for $299 or $2.99. What he did care about was a level playing field, and wanted to make sure if publishers were going to dictate Apple's book prices, they weren't going to be higher than what Amazon, B&N et al. could sell those same books for.

Don't get me wrong. I think the "agency model" (where publishers arbitrarily set prices) is pure greed on the part of the big houses. But apparently agreeing to it was the only way Apple was going to be able to get into the e-book business, and they did the best they could to cover their corporate butt by insisting on "most favored nation" pricing. Just my .02.

I respectfully disagree. I think Jobs could have cared less if the books sold for $299 or $2.99. What he did care about was a level playing field, and wanted to make sure if publishers were going to dictate Apple's book prices, they weren't going to be higher than what Amazon, B&N et al. could sell those same books for.

Don't get me wrong. I think the "agency model" (where publishers arbitrarily set prices) is pure greed on the part of the big houses. But apparently agreeing to it was the only way Apple was going to be able to get into the e-book business, and they did the best they could to cover their corporate butt by insisting on "most favored nation" pricing. Just my .02.

And that right there - making sure others couldn't sell the same product for less - is probably what has them in the DOJ's cross-hairs for price-fixing. Essentially the publishers and Apple (I don't think "Apple didn't have any choice if they wanted to sell the books" is a legal defense) colluded to raise the price of ebooks at other resellers, one of which had been quite successful (does anyone believe that ebooks would have been nearly as popular when the iPad launched if not for the Kindle??) selling them at lower prices in the wholesale model.

I expect this will all lead to some kind of a settlement where the kids all agree not to do it again and possibly pay some kind of trivial fine. I seriously doubt they will be able to force a change in the pricing model, but I would like to see it go back to the way it was with hardcover books. Sell them at a fixed price to retailers and let the market decide what they will sell for. If Apple thinks they can charge more than Amazon for an ebook (or vice versa) the market would decide how many they sell at those prices.

And that right there - making sure others couldn't sell the same product for less - is probably what has [Apple] in the DOJ's cross-hairs for price-fixing.

You can portray it as Apple making sure competitors couldn't sell for less. But from Apple's standpoint, I think it was making sure they weren't forced to sell for more. Big difference there, IMHO.

I expect this will all lead to some kind of a settlement where the kids all agree not to do it again and possibly pay some kind of trivial fine. I seriously doubt they will be able to force a change in the pricing model, but I would like to see it go back to the way it was with hardcover books. Sell them at a fixed price to retailers and let the market decide what they will sell for.

You can portray it as Apple making sure competitors couldn't sell for less. But from Apple's standpoint, I think it was making sure they weren't forced to sell for more. Big difference there, IMHO.

Agree 100%.

Sure, and the whole section of laws regarding fair market and price fixing is (expectedly) very complex. I work for a manufacturer of enterprise focused products and we sell almost entirely through resellers. These resellers often negotiate discounts on products based on the size of the deal, etc. and the one thing that the legal team drills into our heads is - "You cannot dictate the final price to the customer!!!" We can suggest to a reseller that a lower margin on a deal might be in their favor, warranted, whatever but you cannot get into discussions about what the final price to the customer will be. Obviously things aren't that cut and dried in all circumstances (there are plenty of consumer electronics companies that prohibit discounting of certain products) but as I said before, I have to think the DOJ has some pretty significant evidence to go after giants like Apple and these publishers.

I don't see how Apple is any more responsible legally than Amazon or B&N. Didn't they all sign the same contracts with the publishers?

I guess because it was Apple that set the precedent allowing publishers to set an "e-seller's" price. My guess is B&N went along with it because it was also in their interest not to let Amazon undercut them to gain market share, but they'll fly under the radar on this and Apple will take the heat.

I have a feeling when book prices inevitably drop as a result of this DOJ investigation (a good thing ), poor B&N is going to suffer the most, because unlike Amazon and Apple, I don't think they can afford "price wars".

What actually is Apple selling? Does Apple ever take title to the e-book?

I don't know, but it seems Apple is just collecting a commission similar to a real estate transaction vs. a car purchase (the dealer actually takes title to the car). Yes, it does come from Apple's servers so that be relevant. And Apple gets all the money initially.

I think it is much more complicated than just retailers buy at one price and sell at another.

I have a feeling when book prices inevitably drop as a result of this DOJ investigation (a good thing ), poor B&N is going to suffer the most, because unlike Amazon and Apple, I don't think they can afford "price wars".

Possibly to some extent but they have sold a lot of Nooks and those are not going to be able to go buy the book from the Kindle store (unless it's a rooted Nook Color running the Kindle application of course) or Apple. They are pretty much locked into buying from B&N. My wife and I have Kindles and I know there have been times when B&N had a book cheaper but we wanted to read it so we paid more to get it on our Kindles. I think the publishers missed out on an opportunity to see what could be done with the ebook business and instead are just trying to resist change at all costs, even though it (ebooks) are definitely where the future or publishing lies.

The Justice Department sued Apple Wednesday, alleging the technology giant and five major publishers conspired to push up the prices of e-books and limit retail price competition.

The lawsuit, filed in Manhattan federal court by the Justice Department's Antitrust Division, alleges Apple and the publishers had a common interest in fighting Amazon.com’s practice of selling e-books for as little as $9.99, and decided to work together to raise prices.

The government alleges that Apple and the publishers reached an agreement to stop competing on price, allowing e-book prices to rise significantly. Apple would be guaranteed a 30 percent “commission” on each e-book sold...

About time. I bought my eBook reader years ago with the promise that eBooks would be significantly cheaper than paper copies. And they were. Until Steve Jobs visited a couple of publishers just before the iPad came out. Then they all went up $3-$5 in price.

Of course Apple will end up paying less than what they've made. Not much of an incentive to stop them from doing it again.

I don't know how to feel about this... On the one hand, price-fixing is illegal and should probably be dealt with. On the other hand, Amazon isn't noble either and has been dumping books as loss-leaders to capture the market. You can be sure IF Amazon dominated the e-book market, the prices would go up there again.

I don't know all the details... but I don't know why in the case of e-books the publisher can't set the price and disallow sales as part of their contract. It isn't like physical inventory where it costs a lot to stock product OR process returns or damages... and I expect the model is such that neither Amazon nor Apple pays anything to a publisher until after the sale of an e-book... so it's not the same as needing to clear the aisle with a clearance sale to make room for new product and move old product that isn't selling.

An e-book should hold its price essentially forever unless it was overpriced to begin with.

I do love my my ipad but I think if that any parties guilty of this should be heavily fined and refunds would be nice!! I do think the e-book prices are ridiculous. Why should the e-book price be almost as much as the hard cover book price?

I do love my my ipad but I think if that any parties guilty of this should be heavily fined and refunds would be nice!! I do think the e-book prices are ridiculous. Why should the e-book price be almost as much as the hard cover book price?